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. Last Updated: 07/27/2016

Enron Gets $1.5Bln Credit Reprieve

NEW YORK -- In a desperate bid to stay afloat, Enron laid off 4,000 employees at its Houston office Monday -- nearly half its headquarters staff -- and unveiled a $1.5 billion financing plan in a New York federal bankruptcy court designed to keep it operating.

Enron's top lawyer also disclosed that the company is negotiating with three potential investors, who could emerge as white knights and gain control of the troubled company. Enron attorney Martin Bienenstock did not name them and cautioned that any deal could take months to consummate.

Even as employees left the company's tower in downtown Houston carrying their possessions in boxes, U.S. Bankruptcy Judge Arthur Gonzalez set maximum severance payments of $4,500 on Monday, regardless of seniority or salary level.

Gonzalez also approved a $1.5 billion credit deal -- known as debtor in possession financing -- that was put together by a syndicate of banks led by J.P. Morgan Chase & Co. and Citigroup Inc., which are already owed billions of dollars by Enron.

Bienenstock said the funding, $250 million of which would be released shortly, would be sufficient to reinvigorate Enron's trading operations and buoy the confidence of Enron's trading partners who have fled the company in recent weeks.

Analysts said the banks' willingness to offer additional money reflected the belief that they had a better chance of recovering their existing loans if Enron survives in some form than if it is forced to liquidate.

Although the net value of Enron's trading operations has shrunk from $12 billion before its problems emerged in early October, Bienenstock said the operation is still worth $6 billion to $7 billion and deserves court protection.

"Demands on cash cannot well be predicted," he said, noting how quickly Enron burned through its cash in November when the trading community lost faith in its creditworthiness.

Enron shares rose 14 cents to 40 cents Monday on the New York Stock Exchange, where 168 million shares changed hands. The stock had risen as high as 45 cents.

Enron also asked the court for permission to pay $48 million to critical vendors, including $40 million to contractors on Enron's $219 million headquarters building nearing completion in downtown Houston.

The once high-flying energy trading company filed for protection under Chapter 11 of the federal bankruptcy code in New York on Sunday, the largest filing in history as measured in assets, totaling nearly $50 billion.

The company also sued Dynegy Inc., its onetime suitor, for $10 billion on Sunday for breach of contract in terminating merger talks Nov. 28. Dynegy struck back with a suit of its own Monday, calling Enron's suit "frivolous and disingenuous" and vowing a fight to the finish. Dynegy shares on Monday plunged $3.18 to $27.17, also on the NYSE.

In its suit, Enron asked the court to prohibit Dynegy from taking possession of the 27,000-kilometer Northern Natural Gas pipeline subsidiary, which Dynegy claims as security for $1.5 billion in cash that it advanced to Enron after a merger deal was announced Nov. 9.

Dynegy filed a lawsuit in Harris County, Texas, state court Monday seeking unspecified damages and asking the court to confirm its right to the valuable pipeline that stretches from western Texas to the Great Lakes.

Dynegy chief executive Charles Watson said the company was within its rights in terminating the merger talks because Enron experienced "material adverse changes" in its condition after the Nov. 9 deal was signed.